Health and Science

Higher prices, insurer exits and sticker shock for middle incomes if Obamacare rule killed

Key Points
  • The American Academy of Actuaries warned Senate leaders that repealing Obamacare's individual mandate could lead to a number of "adverse consequences."
  • Those include higher insurance plan premiums, financial losses for insurers and insurers leaving the Obamacare market.
  • A new analysis finds that younger and wealthier Obamacare customers will tend to see their higher premiums offset by tax cuts, but older, moderate-income earners will not.
Members of the New Jersey Citizen Action group protest outside the Capitol as the Senate holds a second day of voting on health care legislation on Tuesday, July 25, 2017.
Bill Clark | CQ Roll Call

A group of experts who set insurance prices warned Senate leaders Tuesday that repealing Obamacare's key coverage rule will lead to price hikes, and could weaken insurers' solvency and lead some to exit the market.

At the same time, a leading health policy research group said that younger and wealthier Americans would benefit the most from tax reductions that are included in a bill that would repeal the mandate.

That's because the higher Obamacare premiums that would follow repeal would be more than offset for those two groups of people by their reduced tax burdens.

But older adults with moderate incomes will be less apt to have their higher health plan prices offset by the tax cuts, according to the Commonwealth Fund analysis.

The warning to Senate leaders came in a letter from the American Academy of Actuaries a week after the Senate Finance Committee recommended a tax bill that would, among things, repeal the Obamacare mandate. The group's members help set the prices for Obamacare insurance plans.

Senate Finance Committee to include repeal of individual mandate in tax bill
Senate Finance Committee to include repeal of individual mandate in tax bill

The actuaries wrote that "policymakers should consider the potential adverse consequences of eliminating the mandate."

Those consequences include "increases in premium and the number of uninsured, unless adequate alternative mechanisms are implemented," the letter said.

"Eliminating the mandate would have significant implications for health insurance coverage," the group wrote.

The mandate imposes a tax penalty for Americans who fail to have some form of health coverage during the year.

The Congressional Budget Office has estimated that if the mandate is killed, 13 million more people would become uninsured than are currently projected.

In turn, premium prices are estimated to increase in future years by an extra 10 percent because the remaining pool of Obamacare customers will be sicker and older than it would have been with the mandate still in effect.

Those higher premiums will be paid, as a rule, by higher-income customers who do not receive federal tax credits that reduce their premium costs.

But because premium prices for 2018 are already set, repealing the mandate soon could mean that healthier customers would drop off coverage, leaving insurers with costly, sicker customers.

"This could result in insurer losses and solvency concerns," the actuaries wrote.

The letter also warned that increased uncertainty and instability in the Obamacare market as a result of mandate repeal would increase the risk of insurer losses in future years.

And that "could cause an increase in insurer withdrawals from the market," the letter said.

Republican Senate leaders want the mandate repealed because it would save the federal government almost $340 billion in spending over the next decade.

Those savings — which stem from the government having to subsidize fewer Obamacare customers' premium costs — could then be used to fund tax reductions included in the pending bill.

In some cases, an Obamacare customer whose premiums were raised because the mandate was repealed would see tax reductions that equaled, or more than equaled the difference in their premiums.

But some Obamacare customers would not get enough in the way of a tax break to cover the difference form the higher premiums.

A customer's age, income and state of residence will affect which group they fall into.

In an analysis published Tuesday, the Commonwealth Fund said 27-year-old, nonsubsidized Obamacare customers would see an average premium hike of $492 annually in 2019, and $729 annually in 2027 if the mandate is repealed.

An average 40-year-old customer would see an increase of $598 per year in 2019, rising to $883 in 2027, the group said.

And 60-year-olds would see an increase of $1,269 in 2019, and $1,875 in 2027, according to the analysis.

WATCH: Ryan says Senate will have to take lead on scrapping individual mandate

Speaker Paul Ryan says Senate will have to take lead on scrapping Obamacare individual mandate
Speaker Paul Ryan says Senate will have to take lead on scrapping Obamacare individual mandate